– Consistent rent increases, strong occupancy, continued portfolio expansion and operating efficiencies drive strong Q4 2014 YoY total and samestore NOI growth of 20.4% and 4.8%, respectively –
– REIT completes closing of recently announced property acquisition in Kansas City –
TORONTO and DALLAS, March 4, 2015 /CNW/ – Milestone Apartments Real Estate Investment Trust (TSX: MST.UN) (“Milestone” or the “REIT”) today announced its financial results for the fourth quarter (“Q4 2014”) and year ended December 31, 2014 (“2014”). All comparisons in the following summary are to the corresponding periods in the prior fiscal year. The fiscal year ended December 31, 2013 (“YTD 2013”) represents the 26-day period ended March 31, 2013 combined with the nine-month period ended December 31, 2013, and as such, comparisons between 2014 and YTD 2013 results should be considered in the appropriate context. The REIT completed its initial public offering (“IPO”) on March 6, 2013 and had no operations prior to that date. All dollar amounts are in U.S. currency unless otherwise noted. References to “samestore” results do not take into account acquisitions completed subsequent to the IPO.
A more detailed analysis is included in the REIT’s Management’s Discussion and Analysis and Consolidated Financial Statements, which have been filed on SEDAR and can be viewed at www.sedar.com or on the REIT’s website at www.milestonereit.com.
“We are pleased with the progress we made in 2014 in advancing our value creation initiatives and continuing to strengthen our asset base and balance sheet. During the year, we continued to expand and diversify the REIT’s portfolio through the completion of five accretive acquisitions, adding more than 1,900 units in existing and new markets,” said Robert Landin, CEO of Milestone Apartments REIT.
“The U.S. macroeconomic outlook remains positive with the rise in business investment and consumer spending expected to continue driving growth with GDP in the U.S. forecasted to increase approximately 2.5% to 3.0% in 2015. Our U.S. Sunbelt markets are expected to continue to outperform national averages in both population and employment growth, and our asset class continues to exhibit the strongest demand and rent growth trends among all multifamily residential asset classes in the U.S. With our larger scale, greater financial flexibility and favourable demographic trends in our markets we are well positioned to continue building value for our unitholders,” continued Mr. Landin.
Q4 2014 Financial Highlights
- Total and samestore average monthly in-place rents were $802 and $759, respectively, up 9.6% and 5.0% from $732 and $723 in the fourth quarter ended December 31, 2013 (“Q4 2013”);
- Total and samestore occupancy remained strong, ending Q4 2014 at 95.1% and 95.2%, respectively, up 60 and 70 basis points from total and samestore occupancy ending Q4 2013 at 94.5%;
- Total and samestore revenue were $51.1 million and $41.0 million, respectively, up 18.9% and 4.9% from $43.0 million and $39.1 million in Q4 2013;
- Total and samestore net operating income (“NOI”) were $26.3 million and $21.3 million, respectively, up 20.4% and 4.8% from $21.8 million and $20.4 million in Q4 2013. Total and samestore NOI margins were 53.3% and 52.0%, respectively, up 50 basis points and flat compared to 52.8% and 52.0% in Q4 2013;
- FFO was $15.3 million, up 22.1% from $12.6 million in Q4 2013. AFFO was $13.0 million, up 26.0% from $10.3 million in Q4 2013. FFO and AFFO per unit of $0.25 and $0.21, respectively, were unchanged from Q4 2013. The per unit figures in Q4 2014 do not reflect the full impact of the acquisitions that closed following the bought deal equity offering completed on October 16, 2014 and were adversely affected by increased asset management fees driven by a rise in the valuation of the REIT’s assets, along with increased non-cash deferred unit expenses driven by an increase in the REIT’s unit price during the period;
- FFO and AFFO payout ratios were 57% and 68%, respectively, compared to 61% and 75% in Q4 2013. The REIT’s Q4 2014 payout ratios benefited from a rising U.S. dollar against the Canadian dollar during the period; and
- Improved financial leverage ending Q4 2014 at 51.1%, with investment properties valued at $1.62 billion, compared to 56.0% as at December 31, 2013, with investment properties valued at $1.27 billion.
2014 Financial Highlights
- Total and samestore revenue were $186.7 million and $161.0 million, respectively;
- Total and samestore NOI were $95.5 million and $83.7 million, respectively. Total and samestore NOI margins were 53.1% and 52.0%, respectively;
- FFO and AFFO were $56.2 million and $46.8 million, respectively. FFO and AFFO per unit were $1.01 and $0.84, respectively. The 2014 per unit figures do not reflect the full impact of the acquisitions that closed following the bought deal equity offerings completed on April, 11, 2014 and October 16, 2014 and were adversely affected by increased asset management fees driven by a rise in the valuation of the REIT’s assets, along with increased non-cash deferred unit expenses driven by an increase in the REIT’s unit price during the period; and
- FFO and AFFO payout ratios were 59% and 70%, respectively. The REIT’s 2014 payout ratios benefited from a rising U.S. dollar against the Canadian dollar during the period.
2014 Business Highlights
- Completed the acquisitions of five multifamily apartment communities totaling 1,905 units for a combined purchase price of $243.5 million. Through these accretive acquisitions the REIT entered the Orlando market and expanded its presence in Denver, Atlanta and Houston, further diversifying its portfolio;
- Filed and obtained receipt for a C$650 million base shelf prospectus, enabling the REIT to more efficiently access capital in support of its growth by acquisition strategy;
- Completed two bought deal equity offerings for gross proceeds of C$184.2 million. The majority of the proceeds were used to fund acquisitions, with a portion from one of the offerings used to reduce the retained interest of the REIT’s legacy investor from 42.9% at the IPO to 26.9% currently, thereby more than doubling the ratio of the REIT’s public float relative to its total market capitalization;
- Refinanced the REIT’s $228.6 million mortgage debt facility, adding approximately $50 million of additional proceeds used for acquisitions, extending the REIT’s weighted average debt maturity over 7 years while reducing the REIT’s weighted average interest rate, which ended Q4 2014 at 3.74%;
- Increased the REIT’s revolving line of credit from $50 million to $85 million (with an option to increase it to $125 million), while lowering the interest rate spread from 525 basis points to 285 basis points over the 30 day LIBOR, based on the REIT’s current financial leverage; and
- Declared total cash distributions to REIT unitholders and Class B unitholders of $32.9 million.
Subsequent Events
- On February 2, 2015, the REIT announced the acquisition of Heritage on Millenia, a 303-unit Class A multifamily apartment community located in South Orlando, Florida, for a purchase price of $40.0 million. This acquisition is expected to close by March 31, 2015;
- On March 3, 2015, the REIT completed the acquisition of The Manor Homes of Arborwalk (“Arborwalk”), a 280-unit Class A multifamily apartment community located in the Lee’s Summit submarket of Kansas City, Missouri, for a purchase price of $37.3 million. Through this acquisition, the REIT’s properties are now diversified across 13 markets; and
- In January 2015, the REIT completed the sales of two properties in Atlanta for combined gross proceeds of $21.6 million, as part of the REIT’s overall business strategy to optimize cash flow performance and continue to build long-term unitholder value through strategic acquisitions and dispositions. Net proceeds from the dispositions were used to partially fund the Arborwalk acquisition.
|
Q4 2014 and 2014 Year-End Financial Results Summary |
|||||
|
(US$000s, except per unit amounts) |
Q4 2014 |
Q4 2013 |
Change |
2014 |
YTD 2013(1) |
|
Rents, Samestore |
759 |
723 |
5.0% |
759 |
723 |
|
Rents, Total |
802 |
732 |
9.6% |
802 |
732 |
|
Occupancy, Samestore |
95.2% |
94.5 |
70 bp |
95.2% |
94.5 |
|
Occupancy, Total |
95.1% |
94.5 |
60 bp |
95.1% |
94.5 |
|
Revenue, Samestore |
41,037 |
39,115 |
4.9% |
161,018 |
126,468 |
|
Revenue, Acquisitions |
8,215 |
2,192 |
274.8% |
18,763 |
4,082 |
|
Revenue, Management Company |
1,892 |
1,705 |
11.0% |
6,958 |
5,520 |
|
Revenue, Total |
51,144 |
43,012 |
18.9% |
186,739 |
136,070 |
|
Operating Expenses, Samestore(2) |
15,496 |
14,604 |
6.1% |
77,242 |
48,564 |
|
Operating Expenses, Acquisitions(2) |
2,674 |
864 |
209.5% |
6,119 |
1,401 |
|
Operating Expenses, Management Company(2) |
1,664 |
1,501 |
10.9% |
6,123 |
4,858 |
|
Operating Expenses, Total(2) |
19,834 |
16,969 |
16.9% |
89,484 |
54,823 |
|
Property Revenue, Samestore(3) |
41,037 |
39,115 |
4.9% |
161,018 |
126,468 |
|
Property Revenue, Acquisitions(3) |
8,215 |
2,192 |
274.8% |
18,763 |
4,082 |
|
Property Revenue, Total(3) |
49,252 |
41,307 |
19.2% |
179,781 |
130,550 |
|
Property Operating Expenses, Samestore(3,4) |
19,707 |
18,757 |
5.1% |
77,349 |
61,423 |
|
Property Operating Expenses, Acquisitions(3,4) |
3,295 |
751 |
338.7% |
6,924 |
1,401 |
|
Property Operating Expenses, Total(3,4) |
23,002 |
19,508 |
17.9% |
84,273 |
62,824 |
|
NOI, Samestore (3,4) |
21,330 |
20,358 |
4.8% |
83,669 |
65,045 |
|
NOI, Acquisitions (3,4) |
4,920 |
1,441 |
241.4% |
11,839 |
2,681 |
|
NOI, Total (3,4) |
26,250 |
21,799 |
20.4% |
95,508 |
67,726 |
|
NOI Margin, Samestore (3,4) |
52.0% |
52.0% |
N/C |
52.0% |
51.4% |
|
NOI Margin, Total (3,4) |
53.3% |
52.8% |
50 bp |
53.1% |
51.9% |
|
FFO |
15,328 |
12,552 |
22.1% |
56,155 |
40,104 |
|
FFO Per Unit(5) |
0.25 |
0.25 |
N/C |
1.01 |
0.81 |
|
FFO Payout Ratio(6) |
57% |
61% |
-4% |
59% |
64% |
|
AFFO |
12,954 |
10,277 |
26.0% |
46,808 |
32,850 |
|
AFFO Per Unit(5) |
0.21 |
0.21 |
N/C |
0.84 |
0.66 |
|
AFFO Payout Ratio(6) |
68% |
75% |
-7% |
70% |
78% |
|
Total Distributions Declared(7) |
8,778 |
7,717 |
13.7% |
32,914 |
25,653 |
|
Debt to gross book value |
51.1% |
56.0% |
-490 bp |
51.1% |
56.0% |
|
(1) |
YTD 2013 represents the 26-day period ended March 31, 2013 combined with the nine month period ended December 31, 2013. The REIT completed its IPO on March 6, 2013 and had no operations prior to that date. |
|
(2) |
Includes real estate tax adjustments related to IFRIC 21. |
|
(3) |
Excludes third-party property management revenue and related expenses. |
|
(4) |
Excludes real estate tax adjustments related to IFRIC 21. |
|
(5) |
FFO and AFFO per unit are calculated by dividing total FFO and AFFO for the respective periods by the amount of the total weighted average number of outstanding REIT and Class B units for 2014 (55,641,289), YTD 2013 (49,714,265), Q4 2014 (60,729,837) and Q4 2013 (49,714,265). |
|
(6) |
Payout ratios are calculated by dividing the amount of REIT and Class B unitholder distributions declared, by FFO and AFFO for the respective period. Distributions on REIT and Class B units are translated based on an average CAD to USD exchange rate for the respective period, consistent with IFRS guidance. |
|
(7) |
Represents total cash distributions declared to REIT and Class B unitholders for the period. |
Q4 2014 Financial Results
Total and samestore property revenue were $49.3 million and $41.0 million, respectively, up 19.2% and 4.9% from $41.3 million and $39.1 million in Q4 2013. The increase in total and samestore property revenue is attributable to consistent organic rent growth, higher occupancy and growth from acquisitions completed in 2014.
Total and samestore property operating expenses were $23.0 million and $19.7 million, respectively, up 17.9% and 5.1% from $19.5 million and $18.8 million in Q4 2013. The increase in total and samestore property operating expenses is primarily attributable to higher real estate tax accruals and expenses related to the operations of the acquisitions completed in 2014.
Total and samestore NOI were $26.3 million and $21.3 million, respectively, up 20.4% and 4.8% from $21.8 million and $20.4 million in Q4 2013. Total and samestore NOI margins were 53.3% and 52.0%, respectively, up 50 basis points and flat compared to 52.8% and 52.0% in Q4 2013. The increase in total and samestore NOI is attributable to higher property revenue and continued operating efficiencies, partially offset by higher operating expenses, as noted above.
FFO was $15.3 million, up 22.1% from $12.6 million in Q4 2013. AFFO was $13.0 million, up 26.0% from $10.3 million in Q4 2013. FFO and AFFO growth were attributable to higher property revenue and NOI during the quarter, as noted above. FFO and AFFO per unit of $0.25 and $0.21, respectively, were unchanged from Q4 2013. The per unit figures in Q4 2014 do not reflect the full impact of the acquisitions that closed following the bought deal equity offering completed on October 16, 2014 and were adversely affected by increased asset management fees driven by a rise in the valuation of the REIT’s assets, along with increased non-cash deferred unit expenses driven by an increase in the REIT’s unit price during the period.
Fair Value on Investment Properties
As at December 31, 2014, the properties were valued using an overall weighted capitalization rate of 6.38% (September 30, 2014 – 6.43%, December 31, 2013 – 6.60%). There were $108.2 million of fair value gains recognized in 2014 primarily resulting from increased NOI forecasts. Fair value adjustments are determined based on the movement of various parameters, including changes in stabilized NOI and capitalization rates.
Distributions
Distributions declared to REIT unitholders and Class B unitholders of the REIT’s operating partnership were $8.8 million in Q4 2014, representing an AFFO payout ratio of 68%, compared to declared distributions of $7.7 million in Q4 2013, representing an AFFO payout ratio of 75%. Distributions declared to REIT unitholders and Class B unitholders of the REIT’s operating partnership were $32.9 million in 2014, representing an AFFO payout ratio of 70%, compared to declared distributions of $25.7 million in YTD 2013, representing an AFFO payout ratio of 78%. The REIT’s Q4 2014 and 2014 payout ratios benefited from a rising U.S. dollar against the Canadian dollar during the respective periods. Management expects that 100% of the REIT’s distributions in 2014 will be return of capital.
Liquidity and Capital Structure
As at December 31, 2014, the REIT had cash and cash equivalents of $15.1 million and an $85.0 million revolving line of credit (with an option to increase it to $125 million). As at March 4, 2015, $10.0 million was drawn on the line related to the acquisition of Arborwalk. The REIT ended the period with mortgage notes obligations of $859.8 million with a weighted average interest rate of 3.74% and a weighted average maturity of 7.4 years. Debt to gross book value ended Q4 2014 at 51.1%.
Units Outstanding
As at December 31, 2014, there were 53,505,082 REIT units and 8,076,656 Class B units outstanding.
Arborwalk Closing and Funding
On March 3, 2015, the REIT closed the acquisition of Arborwalk, a 280-unit Class A multifamily apartment community located in the Lee’s Summit submarket of Kansas City, Missouri, for a purchase price of $37.3 million, representing an estimated year-one capitalization rate of 6.4%. This acquisition was previously announced by the REIT on January 14, 2015. Arborwalk was built in 2006 and is currently 95% occupied, with average monthly rents of approximately $975 per unit. Consistent with the REIT’s established portfolio, Arborwalk features extensive amenities and is the only apartment community in Lee’s Summit that offers private attached garages for all of its units. Lee’s Summit is attractive to families due in part to its highly rated school system. The property is also close to large employment centers, major transportation corridors and numerous shopping, dining and entertainment options.
As part of the purchase consideration for Arborwalk, the REIT has entered into a new, 10-year interest only, fixed-rate mortgage of approximately $21.0 million at an interest rate of 3.0% maturing in April 2025. The balance of the purchase price was funded using the REIT’s available cash and revolving line of credit.
Conference Call
Robert Landin, CEO, Steve Lamberti, COO, and Ryan Newberry, CFO, will host a conference call for the investment community tomorrow, Thursday, March 5, 2015 at 11:00 a.m. (ET). The call-in numbers for participants are 416-764-8688 or 888-390-0546. A live webcast of the call will be accessible via Milestone’s website at: www.milestonereit.com/investor-relations/events-presentations.
A replay of the call will be available until Thursday, March 12, 2015. To access the replay, dial 416-764-8677 or 888-390-0541 (Passcode: 056039). The webcast will be archived on Milestone’s website.
About Milestone
Milestone is an unincorporated, open-ended real estate investment trust that is governed by the laws of Ontario. The REIT’s portfolio consists of 58 multifamily garden-style residential properties, comprising 19,441 units that are located in 13 major metropolitan markets throughout the Southeast and Southwest United States. Milestone is the largest real estate investment trust listed on the TSX focused solely on the United States multifamily sector. The REIT operates its portfolio through its internal property management company, Milestone Management, LLC, which has more than 900 employees across the United States. Based in Dallas, TX, TMG Partners, L.P., an affiliate of The Milestone Group, LLC, is the external asset manager of the REIT. For more information, please visit www.milestonereit.com.
About The Milestone Group, LLC
The Milestone Group is a privately-held real estate investment management company with expertise and presence in major metropolitan markets throughout the United States. The firm has corporate offices in Dallas, Texas and New York, New York with regional acquisition and management offices across the United States. Founded in 2004, The Milestone Group has a strong track record of investing in the U.S. multifamily sector, including completion of more than US$4.5 billion in multifamily transactions. For more information, please visit www.milestonegp.com.
Non-IFRS Financial Measures
This press release contains certain non-IFRS financial measures including FFO, AFFO, NOI, average in-place rents, average occupancy, samestore measures, acquisitions, FFO payout ratio, AFFO payout ratio and any related per unit amount to measure, compare and explain the operating results and financial performance of the REIT. These measures are commonly used by entities in the real estate industry as useful metrics for measuring performance. However, they do not have any standardized meaning prescribed by IFRS and are not necessarily comparable to similar measures presented by other publicly traded entities. These measures should be considered as supplemental in nature and not as a substitute for related financial information prepared in accordance with IFRS. Please refer to the REIT’s Management’s Discussion and Analysis for the fourth quarter and year ended December 31, 2014 for a reconciliation of NOI, FFO and AFFO to standardized IFRS measures.
Forward-looking Information
This news release may contain forward-looking statements (within the meaning of applicable securities laws) relating to the business of the REIT and the environment in which it operates. Forward-looking statements are identified by words such as “believe”, “anticipate”, “expect”, “intend”, “plan”, “will”, “may” and other similar expressions. Some of the specific forward-looking statements in this news release include, but are not limited to, statements with respect to the REIT’s financial performance, access to capital, financial flexibility, the ability to pursue value creation opportunities, and the ability to create long-term unitholder value. They are not guarantees of future performance and involve risks and uncertainties that are difficult to control or predict. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to, the factors discussed under the heading “Risk Factors” in the REIT’s annual information form available at www.sedar.com. The forward-looking statements in this news release are based on certain assumptions. There can be no assurance that forward-looking statements will prove to be accurate as actual outcomes and results may differ materially from those expressed in these forward-looking statements. Readers, therefore, should not place undue reliance on any such forward-looking statements. Further, these forward-looking statements are made as of the date of this news release and, except as expressly required by applicable law, the REIT assumes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
SOURCE Milestone Apartments REIT
